US-China Talks Off To A Frosty Start In Alaska

Very good morning to you. Hope you're doing well. Friday, 19th of March, and before I begin the briefing, just a reminder for the latest Market Watch podcast with myself and head of trading Piers Curran. I'm going to record that in a few hours' time and we'll publish it later today. So all you've got to do is either go to amplifierlive.com/podcast and/or you can just go to the individual podcast platforms on Spotify, on Apple, just search for Market Watch and you'll be able to find it. So an informal chat that Piers and I have at the end of every week, and this week probably we're going to talk about the Fed a little bit, and we'll talk about this whole kind of vaccine situation ongoing between the UK and Europe. So if you want to get our latest insights on that, the podcast is the best place to go. And don't forget to subscribe and leave a review, that would be amazing. Otherwise, look, let's get straight into the briefing and talk talk about what's going on today. And really yesterday was an interesting one. We did say on Wednesday after the initial reaction to the FOMC, we obviously saw a kind of dovish response in a sense that equities move higher, dollar weakened considerably, which helps support the major pairs. But if you look at where the major pairs are trading now, top left corner, EURUSD is completely kind of scratched from where we are. or where we were prior to the Fed announcement coming out. So basically flat, X-ing out that, that pop that we saw. Same kind of case with cable to that extent. Equities obviously reversed course after moving up to record high territory. The key here, I think, to understand these moves is, as we were kind of alluding to, was the reaction effect that we had on Wednesday. Our view was down to kind of misplaced market expectations about looking for something more hawkish particularly around that dot plot moving forward to a rate hike sooner rather than later, which didn't materialize. Of course, there were some other things, but that was the main kind of take-home. The ultimate point here though is that in those, um, summary of economic projections, growth in America is going, as per their projections, to move up to around the mid-6% region by the end of the year, is what they're looking at as their base case scenario. And so growth is going to substantially improve in the US as we go through the reopening with the stimulus in the system, more infrastructure spending to come, COVID cases thankfully improving in the States, vaccinations picking up rapidly, and the reopening of the economy. And so with that, then yields will rise as the economy grows. And so I think yesterday was a really good reflection of that. And in the US 10-year, we broke below what was a key kind of trading band, I guess, that we were trading for quite a period of time, which was— if I just mark it up here— was this, this area going back to the beginning of March, which was 131.23 to around the 132 low kind of figure. And we broke out through that really more forcefully in the session 2 days ago. We bounced back through there though on the release of the Fed, but then yesterday we broke the lower bound of that and we actually saw the US 10-year yield move above 1.75% for a fleeting period of time, which was a 14-month high before kind of retreating back to around 1.72%. Um, what does this mean then, generally speaking? Well, equities not liking it, and obviously the higher yield environment tends to hit growth stocks the harder. And so tech underperforming. The NASDAQ was down in excess of 3% comparative to the Dow, down just 0.5%. So the regular kind of reflection of that high-yield environment in the equity sector kind of space. In the equity market, I know it feels, feels quite heavy, but, you know, I think context is quite key. We, we're at record high territories. We've come off and we've responded here in the S&P around 3,900, which is a key kind of strategic point of support in the near-term price action for the month of March. You can see here, going back to the beginning, the 1st of March, the initial tests and breakthrough to come back to bounce off that as a support area on the 12th, and then again in the recent last 24 hours as well. So a key area to watch there going forward. The other market that obviously moved substantially yesterday was oil. I saw quite aggressive breakdown in price. In fact, at one point for the session, we were down almost 10%, which obviously is a a correction in those percentage terms. The rationale behind that— there were some kind of tenuous links drawn between the fact that mainland Europe continues to confront a fairly challenging COVID situation, case rates going up in Italy and France, the latter being the latest to impose more stringent lockdowns on the capital city and other regions like what we've seen in Italy. And subsequently, that is going to have a degree of demand impact. But overall, I think you had a bit of a technical breakdown in price that drew in some of the kind of more momentum-based speculators, just driving that fast money move. And the market just traded quite heavy from that point. Not as well forgetting that yesterday was a resurgent dollar day, reversing the entirety of the move that we had on the weakness and the knee-jerk reaction on the back of the Fed on Wednesday. So Overall, there was a couple of factors there, I think, that explain that move in particular. If you look at the daily chart, I always think perspective on a higher timeframe is quite key. And look how far we've rallied since November. I mean, this is an incredible move. So let's quickly look at this on percentage terms, going from the low that we printed on 2nd November. We have rallied 102%, I might add, in terms of the price to the high that we've seen just a short while ago. So to come off and now trade down 11% after a 100+ percent rally, I don't think is, is, is too much cause for concern at this point. I have marked up here on the daily chart a couple of key areas that I would be keeping an eye on. We've threatened but failed to close below the low area of the 3rd of March. I think that technically was quite important for price here. So quite a key support area to look out for now for price at 5924. Even if we did break that, then I'd look back down to the high we have on the 5th and then that kind of double bottom on the 9th and 12th of Feb as the next support area down at 57.32. And even then, don't forget, we're talking about a correction move down of what, 15% off that 100+ percent move that we've seen over the course of the last 3 months or so. So again, I still, um, although it was heavy yesterday, I, I kind of agree. I heard a comment from Goldman Sachs from earlier this morning. They said that they expect OPEC+ output to increase by 2.8 million barrels per day in August and see Brent rising to $80 in the summer, while it views yesterday's sell-off as a transient pullback in a larger oil price rally and a buying opportunity. And, you know, I'm not putting all my, all my eggs in the Goldman basket, but I do believe in a similar kind of view in the sense that lower prices will get bought into, I think, is how the market will, will see this strategically. Um, all right, well, lower close then on Wall Street, a little bit of a bounce off the lows here in equities, um, as some of these find some strategic kind of support at lower levels. So as I said, in the S&P, quite a key level. There's another level here as well in the NASDAQ that looks equally like a good area that the market has responded to from some of the price activity of previous resistance and support. And we're just popping out above the Asia-Pac range here, actually, as we're delivering this. So moving back up around 50 points now in the, the Nasdaq future ahead of the open. But overnight in Asia, it was a little bit of a case of just picking up the negative handover from what we saw in the close on the US. Also, a couple of things to be aware of that were happening in the Asia-Pac session. And namely, Chinese equities a little bit softer. We've had our first kind of first high-level talks between US and China since the Biden administration have come in, and it descended into bickering is what Bloomberg is suggesting, and each side criticizing each other over human rights, trade, and international alliances. So we weren't looking for much in the way of any kind of tangible outcome of substance from these talks. It's the first meeting, so it's very much just kind of feeling each other out. Some people were looking at the fact that a slightly more friendly atmosphere might be received as a slight positive for markets, even without any definitive kind of results from these talks. But seemingly so far, both are trying to just hold their stance at these first kind of meetings, and that has being received a little bit negative in the overnight session, but so far it's not really impeding, uh, the kind of slight recovery we're seeing here at the European Open. So I don't think you could have expected too much more than what's happened. Perhaps someone in with a little bit of a higher expectation of hopes of a slightly friendlier mood, and that hasn't materialized as yet, but obviously they're going to have more talks coming up in the coming weeks. The other thing then from the overnight session was the BOJ. They had their kind of review after a lengthy policy look at the tools that they're currently using. And what they came out with was they set out a wider than previously thought movement range for bond yields, and they scrapped a buying target for stock funds at the end of their 3-month policy review. So basically they've scrapped the ¥6 trillion ETF buying target. They've kept the higher bound threshold of 12 trillion. One of the other key things here that did weigh on the Nikkei 225 last night was the fact that the bank's decision to only focus on the TOPIX. So that's like the broader Tokyo-based index rather than the kind of more kind of familiar Nikkei. And so broadening out that purchasing just the TOPIX moves away the purchasing of the Nikkei, and that consequently had a bit of a negative impact there as well. So all in all, as we were kind of suggesting at the very beginning of the week when we're looking at the whole kind of events to be aware of for the week ahead, and the BOJ, definitely a bit of a domestic impact there. The yen, not really too much of a great deal of movement. Again, still with the, the greenback kind of dictating proceedings for much of the G10 kind of currencies at the moment. So I wouldn't really look at the BOJ as something that's going to really impact the UK, European, US assets that we're trading this morning. Talking of vaccines, just a brief update. There's been a lot of drama, of course, about rising political tension between Europe and the UK in regard to vaccines, particularly on the AstraZeneca drug. But following the EMA kind of announcement yesterday, Germany, France, Spain, Italy have all going to reversed course, and they've said that now that that EMA investigation is concluded and the vaccine was not associated with the potential risk of blood clots, adding that the benefits in the shot outweigh any possible risks, they're all going to recommence that, the usage of that vaccine. Meanwhile, elsewhere in France, I did briefly mention that Macron's government has put Paris and several other regions under stricter lockdown conditions for a third time hospital is running out of intensive care beds for COVID-19 patients at the moment and slightly worryingly that their COVID case rates continue to climb at the moment. In fact, I don't think that this, this latest move is particularly surprising, and I don't think you should really think of it as a real net negative for something like the euro, for example. And the reason for that is, is that it's not really a surprise if you've been tracking the daily infection rates of new COVID cases in France. They have risen to 30,000 nationally in recent days, and that is up more than 20% in a week. So on the point of the, the actuality of COVID cases worsening, it's almost inevitable that government's got to take some kind of action to try and control in the particular hotspots. And then also, it's been fairly well telegraphed in the press that this was going to happen. So all in all, what does that mean for France specifically? Well, the new restrictions, according to analysts, are expected— well, according to the Finance Ministry, in fact, in France— are expected to knock off around 0.2 percentage points from French GDP, its annual economic output. The monthly cost of compensating furloughed workers and closed businesses is also going to rise up to around €7.2 billion, which is just over a billion more than what they previously were expecting in the government forecast. Um, so that's the latest there. And then the final thing I wanted to mention was the calendar today. It is pretty quiet. There's not really anything major coming out. Um, you've got CAD retail sales, but everything else is kind of a bit of a side point, quite frankly. And so with a quiet calendar, the other thing to be mindful of is this, which is quadruple witching. So specifically relevant for equity traders, What is quadruple witching? Well, just to refresh you and your memory, if you are relatively new to markets, then it refers to the dates at which derivatives of stock index futures, stock index options, stock options, single stock futures all expire simultaneously. And so the main point here is that while it may result in increased volume and arbitrage opportunities, quadruple witching doesn't— not necessarily translate to increased volatility to for markets, but you can witness heavy trading volumes. So essentially, just going back to the timings here, they are slightly different. There tends to be like a uniform pattern: the FTSE followed by the Euro Stoxx, the DAX, US indices at the market open, and then the CAC 40 later on in the afternoon. So it's just about around the times of expirations to be aware of those if you are trading those particular products. Um, but that is it. So from a technical point of view, I'll let the guys come on, on Amplify Live stream, uh, shortly, and they can run through the charts as they see it. Uh, don't forget to check out the, the podcast as well, a brand new episode coming out in just an hour or so's time. All right guys, have a good session ahead and have a fantastic weekend. Take care.